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Pathologies of the state

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This paper uses a simple dynamic model where a government performs three functions: taxation, public spending and contract enforcement to study pathologies in resource allocation by government. A key feature of the approach is that states may invest in their future capacities to raise taxes and protect property rights. Three types of state are shown to be possible in this framework: common-interest states, redistributive states and weak states whose emergence depends on the nature of political institutions. We consider both Pigouvian and Wicksellian benchmarks against which to compare different outcomes that might arise in political equilibrium. The paper argues for a greater focus on weak government and points out that a failure to generate Wicksellian unanimity lies behind them.